Notes From Underground: The Unemployment Report Revealed Little

The headline nonfarm payroll number was much weaker than expected and confused traders because it was so wide of the April 5 ADP release of 263,000, but the rest of the data was tepid though not weak enough to dissuade the FOMC from further efforts to raise rates. The important average hourly earnings was up 0.2%, in line with expectations, but the weekly hours worked slipped 0.1, which may have been in response to the early March storms. The unemployment rate dropped to a recovery low of 4.5% but that may be because of the amount of workers having left the labor force. The markets’ initial reaction to the headline NFP was the bonds rallied, the dollar weakened and the precious metals rose. By day’s end all the moves reversed from early rallies inspired by the U.S. missiles fired at Syria. The market had deemed the cruise missiles fired at the air force base in Syria as a market destabilizing event, spurring a purchase of what are deemed safe haven assets: GOLD, YEN, BONDS. But the end of day reversal nullified Syria as a one-off event. So the market is confused as to the genuine impact of the unemployment report and we will have to wait for more economic data to weigh all the “communication” coming from FED speakers. Chair Yellen will be speaking with a Q&A session on Monday afternoon so late market action should not be discounted.

***The Trump/Xi conference went off without any major dust-ups so we can call it a success for all sides. The missile strike on Syria could have been provocative but it seems all major parties were notified prior to the operation, including the Russians. Mr. Xi and President Trump set this meeting in Florida to take a measure of each other and hopefully build upon the initial meeting for future constructive conferences. A Financial Times article about the meeting’s outcomes cites some cooperation on trade: “China is also willing to end a ban on U.S. beef imports since 2003, officials said, and buy more grains and other agricultural products….” There was also discussion about easing restrictions of U.S. financial investments in China, as well as the U.S. reciprocating by easing up on Chinese investments in American corporations. Also, China was seeking the ability to purchase more sophisticated U.S. technology, helping to reduce the massive Chinese surplus with Washington. The agricultural sector will be the biggest beneficiary of Chinese demand and it now is important to watch the CHARTS on grains and cattle to see if the summit carries over to positive price action. The GRAIN markets have been in a bearish stance because of this year’s massive crops in the U.S. and Latin America. The recent planting intentions also pushed soybean prices lower as record acreage is expected to be planted. If the grains can hold critical long-term support levels then Chinese demand will again be the critical component for the next year. A positive for the U.S. agricultural sector is that the Brazilian real has appreciated 14% against the U.S. dollar since last year, providing an incentive for China to buy American grain. This is something for our radar screens this summer.

***I wish to post another Financial Repression Authority podcast with Peter Boockvar and Uli Kortsch. I believe these podcasts provide great value as good questions and quality discussions flush out good investment and trade ideas. While we do not all agree that is a good outcome. Our ending discussion on global trade issues is certainly a point of contention between the three participants.

***Finally a very Happy Passover and Easter holiday for those who indulge me with your time and feedback. Let’s have a year of peace for all the world.